Bell Supply House produces recycled paper that it sells by the case.Budgeted amounts for the coming year are as follows: $\begin{array}{lr}
\text { Revenues (20,000 cases at } \$ 12 \text { each) } &&\$240,000 \
\text { Direct material } & \$ 40,000 \
\text { Direct labor } & 70,000 \
\text { Variable manufacturing overhead } & 50,000 \
\text { Fixed manufacturing overhead } & 30,000 &190,000\
\text { Net income }&&50,000
\end{array}$ LTS Enterprises has offered to purchase 2,000 cases of the paper from Bell at a price of $12.50 per case.This special order will have additional variable costs of $0.35 per case due to delivery costs.Bell Supply House has the capacity to produce this order and it will not affect any of its other operations.How much is the incremental profit (loss) associated with the special order?

Question

Quizplus · Accepted Answer

The incremental profit from the special order can be calculated as follows: Incremental revenue is 2,000 cases * $12.50 = $25,000. Incremental costs include additional variable costs of 2,000 cases * $0.35 = $700 and the variable costs of producing 2,000 cases (Direct material, Direct labor, and Variable manufacturing overhead per case = ($40,000 + $70,000 + $50,000) / 20,000 cases = $8 per case, so for 2,000 cases it's 2,000 * $8 = $16,000). Therefore, the total incremental cost is $16,700 ($16,000 + $700). Incremental profit is $25,000 - $16,700 = $8,300.

Bell Supply House Produces Recycled Paper That It Sells by the Case.Budgeted